Opinion by Judge Catherine C. Blake
Held: Agreement requiring at-will employee to arbitrate disputes with employer, which recited only hiring and continued employment as consideration, which did not require employer to arbitrate, and which gave employer unilateral control over pool of potential arbitrators, was held unenforceable because it lacked mutuality of consideration and denied the employee access to a neutral arbitral forum.
Facts: Plaintiff was an employee at the Defendant company who was terminated in 2011. Plaintiff alleged that she was discriminated against and terminated because of her gender and filed suit under Title VII of the Civil Rights Act of 1964 and Maryland state law.
When Plaintiff commenced employment with the Defendant company, she signed a Problem Support Policy that included “a valid and binding” arbitration agreement under which employees of the Defendant company promised to arbitrate disputes in consideration of only the employees’ hiring and continued employment. Defendant had exclusive control over the list of potential arbitrators. When an employee of Defendant elected to arbitrate a dispute, Defendant was to provide the employee with its list of qualified arbitrators from which the employee could choose. The agreement required employees of the Defendant company to arbitrate but did not require the Defendant company to follow similar procedures or submit to arbitration.
Defendant filed a motion to dismiss or to stay and compel arbitration pursuant to the arbitration agreement signed by Plaintiff.
Analysis: Although the court acknowledged the Fourth Circuit’s liberal policy toward arbitration agreements, it emphasized it still must evaluate arbitration agreements as contracts. The court therefore first analyzed whether the arbitration agreement was valid and enforceable. The court found two independent reasons the arbitration agreement was unenforceable: (1) the agreement lacked consideration and (2) the agreement denied employees access to a neutral forum. Because the arbitration agreement was unenforceable the court denied Defendant’s motion to dismiss the case or to stay and compel arbitration.
First, like all contracts, arbitration agreements must contain adequate consideration. Cheek v. United Healthcare of Mid-Atlantic, Inc., 835 A.2d 656, 661 (Md. 2003); Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967); Noohi v. Toll Bros., Inc., 708 F.3d 599, 609 (4th Cir. 2013); Hill v. Peoplesoft USA, Inc., 412 F.3d 540, 543-44 (4th Cir. 2005). The court followed the logic laid out in Cheek, supra, to conclude that employment or continued employment is not alone adequate consideration for an employee’s promise to arbitrate. Cheek, 835 A.2d at 666. Because it did not require Defendant to submit to arbitration, the arbitration agreement was entirely “one-directional” and therefore lacked mutuality of consideration.
Second, even if the arbitration agreement did have adequate consideration, it denied employees access to a neutral forum. Although there is uncertainty as to whether an arbitration agreement that denies one party access to a neutral forum results in unconscionability, a material breach, or simply unenforceability of the agreement, courts agree that denial of access to a neutral forum in an arbitration agreement may make the agreement unenforceable. Muriithi v. Shuttle Exp., Inc., 712 F.3d 173, 176 (4th Cir. 2013); Hooters of America, Inc. v. Phillips, 173 F.3d 933, 938-39 (4th Cir. 1999); Murray v. United Food & Commercial Workers Int’l Union, 289 F.3d 297, 302 (4th Cir. 2002).
Here the arbitration agreement denied Plaintiff access to a neutral forum because Defendant had exclusive control over the list of arbitrators from which employees were required to select. In the Fourth Circuit an employer may not retain this exclusive right. Murray, 289 F.3d at 303. Defendant’s promise in the agreement to provide a list of impartial arbitrators was not deemed sufficient to overcome the lack of mutuality in the arbitration selection process. In addition the arbitration agreement was vague with respect to the rules to be followed, thereby providing a further reason to challenge the neutrality of the forum.
The full opinion is available in PDF here.
Post written by Maria A. Stubbings